Report: Tax time means overhaul subsidy repayments for many

TOM MURPHYMarch 24, 2015

Half of the U.S. households eligible for help buying insurance last year under the health care overhaul will likely have to repay some of that aid this tax season, thanks to the tricky task of predicting future income.

A report released Tuesday by the Kaiser Family Foundation estimated that these repayments — which can cut into or erase a tax refund — will average nearly $800, with the actual amounts varying widely.

Kaiser also estimated that an additional 45 percent of eligible households didn’t receive enough assistance based on their income and will get some sort of refund.

These repayments and refunds stem from a major coverage expansion the overhaul launched for 2014 as part of its push to cover millions of uninsured people. The law calls for income-based tax credits or subsidies to help people buy coverage. To get that help, an applicant has to estimate what his or her income will be in the year when the coverage starts.

Then the applicant has to reconcile that estimate with actual income at tax time. That means they may have to repay some of the help if income turned out higher than expected or the household may receive a refund if it came in lower. Kaiser estimates that only 5 percent of eligible households will neither owe a repayment nor receive a refund.

“It’s just very hard for people to predict accurately ... how much they are going to make as much as a year from now,” said Larry Levitt, a senior vice president with Kaiser, which studies the federal law and other health care issues.

People who signed up for coverage after enrollment started in the fall of 2013 had to base their income estimates for the next year off of their 2012 tax returns. That means they likely used dated numbers.

Estimating income also can be especially tough for those who live closer to poverty levels because they are more likely to move from job to job or switch from part-time to full-time work and vice versa during a year, Levitt said.

Plus, people earning hourly wages can see their hours cut. A marriage, divorce or the birth of a child also can change a household’s income during the year and after the estimate is calculated.

Kaiser’s researchers came up with their estimates after studying U.S. Census income data for residents who would be eligible to receive subsidy help. Kaiser said about 6.7 million people had signed up for a plan on the overhaul’s public insurance exchanges and qualified for assistance by the end of open enrollment in 2014.

The researchers found that 55 percent of the households that will have to repay some of their assistance will owe $500 or less. Likewise, the same percentage of households in line for a refund will get $500 or less.

Tax services provider H&R Block also said last month that, so far this tax season, 52 percent of the people who signed up for coverage through the overhaul’s public exchanges have had to pay back a portion of the tax credit they received. H&R Block said the average amount paid back was $530. That decreased tax refunds, on average, by 17 percent.

The overhaul requires that those who receive help to report income changes during the year so subsidies can be adjusted.

Levitt, the Kaiser Family Foundation executive, expects more people to do that in future years as they become familiar with the process and seek to avoid tax season surprises.